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16.03.2022 02:21 PM
US premarket on March 16, 2022

US stock market futures rose sharply on Wednesday, despite the upcoming meeting of the Federal Reserve, as traders tried to extend yesterday's rally. Risk assets made gains on the news of a first breakthrough in peace talks between Russia and Ukraine.

Russia would consider an Austrian or Swedish version of a neutral, demilitarised state with its own army and navy as a possible compromise, president Putin's spokesman Dmitry Peskov told Russian state media. Peskov refused to give further details on this plan, which was reportedly discussed by Russian and Ukrainian delegations. Kyiv's chief negotiator, Mykhailo Podolyak, said that only a model of legally binding security guarantees that would offer Ukraine would be acceptable. A new round of negotiations is expected to begin in the near future.

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Dow Jones Industrial Average futures gained 359 points or 1.1%, S&P 500 futures rose by 1.2%, and Nasdaq 100 futures increased by 2%. The biggest movers during the premarket were Micron Technology on the S&P 500, which added more than 4%, Starbucks, which rose by 3.5%, and Boeing on the Dow Jones, which gained 2.3%.

In his address to the nation, Ukrainian president Volodymyr Zelensky stated that peace talks with Russia were beginning to sound "more realistic". Russian foreign minister Sergei Lavrov told BBC that there was some hope of a compromise. Russia's war against Ukraine has rattled the world's financial markets – commodity prices skyrocketed while equities tumbled. At this point, WTI crude oil is trading at $95.70 after falling from the high of $130.

Investors are focusing on the Federal Reserve's policy decision. The Fed is expected to raise interest rates by 25 basis points in its first rate hike since 2018. Furthermore, economists expect the regulator to announce 5-6 increases in 2022 in its forecast for the upcoming quarter. A more hawkish Fed policy and outlook could send the stock market into a downward correction once again. High volatility is also expected during statements by Fed chairman Jerome Powell.

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On the technical side, S&P 500 bulls should act more aggressively if they expect to resume the pair's upward movements in the near future. The Fed meeting is limiting risk appetite in the market – its decision could briefly send the market tumbling. An interest rate increase is a negative factor for equities. Bullish traders could attempt to settle above $4,320 today. If they fail, renewed pressure would send the index towards $4,265 once again. The odds of a successful breakout of this level depend on how hawkish the Fed would be. Very hawkish statements by the regulator would lead to a renewed bear market, and the index could test the lows at $4,216 and $4,162. If it settles above $4,320, a recovery could be possible. An upward movement of the S&P 500 would allow opening new short positions near $4,383 and $4,433.

Jakub Novak,
Analytical expert of InstaForex
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